In an article entitled “Gold and Economic Freedom,” Federal Reserve Chairman Alan Greenspan wrote that “The excess credit which the Fed pumped into the economy spilled over into the stock market- triggering a fantastic speculative boom…The speculative imbalances had become overwhelming and unmanageable by the Fed… In the absence of the gold standard, there is no way to protect savings from confiscation through inflation.” The irony is that Mr. Greenspan’s words, written in 1966 to describe the era leading up to the Great Depression, could easily have been written in 2003 to describe the consequences of his own Fed policies during the 1990s.
Greenspan once understood that a fiat money system represents nothing more than
a sinister and evil form of hidden taxation. When the government can print money
at will, it’s morally identical to the counterfeiter who illegally prints
currency. Fiat money polices especially hurt savers and those on fixed incomes,
who find the value of their dollars steadily eroded by the Fed’s printing
need to understand why a fiat system is so popular with economists, the business
community, bankers, and government officials.
One explanation is that a fiat monetary system allows power and influence
to fall into the hands of those who control the creation of new money, and to
those who get to use the money or credit early in its circulation. The insidious
and eventual cost falls on unidentified victims, who are usually oblivious to
the cause of their plight.
explanation is that it’s human nature to seek the comforts of wealth with the
least amount of effort. This desire is quite positive when it inspires efficient
work and innovation in a capitalist society. Productivity is improved and the
standard of living goes up for everyone. But
this human trait of seeking wealth and comfort with the least amount of effort
is often abused. It leads some to believe that by certain monetary
manipulations, wealth can be increased out of thin air.
Americans are oblivious to the entire issue of monetary policy.
We all deal with the consequences of our fiat money system, however.
Every dollar created dilutes the value of existing dollars in
circulation. Those individuals who worked hard, paid their taxes, and saved some
money for a rainy day are hit the hardest.
Their dollars depreciate in value while earning interest that is kept
artificially low by the Federal Reserve easy-credit policy.
The poor and those dependent on fixed incomes can’t keep up with the
rising cost of living.
do hear some minor criticism directed toward the Federal Reserve, but the
validity of the fiat system is never challenged. Both political parties want the Fed to print more money,
either to support social spending or military adventurism. Politicians want the printing presses to run faster and
create more credit, so that the economy will be healed like magic- or so they
Fiat dollars allow us to live beyond our means, but only for so long. History shows that when the destruction of monetary value becomes rampant, nearly everyone suffers and the economic and political structure becomes unstable. Spendthrift politicians may love a system that generates more and more money for their special interest projects, but the rest of us have good reason to be concerned about our monetary system and the future value of our dollars.